Bankwest has been forced to refund $4.9 million to customers who were incorrectly hit with interest charges.

More than 10,800 customers were overcharged during a nine-year period between 2007 and June 2016 after Bankwest – a division of the Commonwealth Bank of Australia – failed to link offset accounts to home loan accounts.

Bankwest reported the matter to ASIC as a significant breach of its obligations, says Peter Kell, the deputy chairman of ASIC.

"When a problem is identified, licensees not only have an obligation to report the breach, but impacted customers must be returned to the position they would have been in, had the breach not occurred," says Kell.

''It is critical that licensees ensure that their systems work properly so that promises made to customers about their bank accounts are kept."

Money held in an offset account is meant to negate interest charges. A customer with a home loan of $500,000 and a savings balance of $20,000, for instance, would only pay interest on the $480,000 difference.

Bankwest was prompted to investigate its systems and processes after a number of other banks were found to be overcharging customers. ANZ refunded $70 million to customers in 2014 and refunded a further $5 million in 2016, while the Commonwealth Bank refunded approximately $80 million in late 2015.

The announcement comes a week after the industry launched reforms to improve the banking experience for customers. New initiatives to the Better Banking program aim to help low-income earners, small business owners and farmers.

DISCLOSURE FROM CHOICE: Our CEO Alan Kirkland is part of an independent expert panel appointed by the federal government to review the framework for external dispute resolution and complaints in financial services. You can find out more about the review and make a submission through the Treasury's website.